Acquisitions of auto-parts firms poised to climb

Sunday

May 30, 2010 at 12:01 AMMay 30, 2010 at 11:45 AM

SOUTHFIELD, Mich. - The recovery in U.S. automobile sales from the lowest point in three decades may spur a wave of auto-parts acquisitions, drawing interest from hedge funds, private- equity investors and rival manufacturers after a two-year slump in deals.

SOUTHFIELD, Mich. — The recovery in U.S. automobile sales from the lowest point in three decades may spur a wave of auto-parts acquisitions, drawing interest from hedge funds, private- equity investors and rival manufacturers after a two-year slump in deals.

Johnson Controls Inc.’s $1.25 billion offer for bankrupt Visteon’s electronics and interior businesses, announced on May 21, is the largest by a parts maker this year, according to data compiled by Bloomberg. BorgWarner Inc. and Federal Mogul Corp. say they are seeking acquisitions, and WL Ross & Co. says the takeover environment is improving.

“Companies that spent the last 18 months cutting costs in a panic are finally taking a breath and looking at things strategically again,” said John Casesa, an analyst at Casesa & Co. in New York.

The acceleration in auto-parts mergers and acquisitions would come after two years that, excluding government bailouts, were the slowest since 2005. The number of deals in 2010 may rise as much as 25 percent from last year and be the highest since 2007, said Paul Elie, U.S. automotive transaction-services leader for PricewaterhouseCoopers in Detroit.

The number of auto-parts deals peaked at 338 acquisitions completed in 2007 before falling to 294 in 2008 and 161 last year, according to data compiled by Bloomberg. The value of the mergers in the past two years, excluding government-sponsored deals involving General Motors Co. and Delphi Inc., was less than $18 billion a year after the 2007 peak of $46 billion.

The expectation that U.S. auto sales are recovering from a 27-year low in 2009 is attracting private equity and hedge-fund investors, said Dietmar Ostermann, a director for the consulting firm PRTM.

Assets from companies such as Delphi, French interior supplier Faurecia, Lear, and ArvinMeritor may be targets, he said. Other Visteon assets such as the lighting unit are attractive, Ostermann said.

The largest deal announced this year involving an auto-parts company on either side of the transaction was TPG Capital’s $1.3 billion offer for American Tire Distributors on April 21.

The most active private-equity firms in the last three years, when there were 215 automotive investments, included Carlyle Group, Cerberus Capital LLP, Kleiner Perkins Caulfield & Byers and Rockport Capital Partners, according to a PRTM study .

General Motors in January proposed selling its Nexteer power-steering unit, a $2.1 billion business it took back from its former unit Delphi as part of the supplier’s bankruptcy restructuring. The business has 6,200 employees and 22 plants.

U.S., Chinese and South Korean parts suppliers and private-equity companies are among potential buyers for the unit, said two people familiar with the talks.

A GM spokeswoman, Kim Carpenter, declined to comment on the possible Nexteer sale.